The Surge In US Auto Sales Is Hurting Product Quality

Dearborn, Michigan (Reuters) - The recent surge in U.S. auto
production is hurting vehicle quality because automotive parts
suppliers have less time to fix problems that emerge on the line,
Ford Motor Co's <F.N> new global purchasing chief told
reporters on Monday.

Hau Thai-Tang, who led the overhaul of Ford's Mustang sports car
in 2005, also said the No. 2 U.S. automaker is exploring a
cost-cutting strategy that requires Ford to tweak the design of
its global models for specific regions.

Auto parts suppliers, which closed scores of factories during the
financial crisis, are operating around the clock to meet consumer
demand for cars and trucks that is marching toward pre-recession
levels.

"Everyone is running flat out and it's contributing to some of
the quality challenges that we've seen," said Thai-Tang, who
oversees Ford's $100 billion global budget for everything from
raw materials to marketing to paper towels.

U.S. auto sales are on pace to reach 15.6 million units this
year, according to J.D. Power and LMC Automotive. Many analysts
expect auto sales to exceed 16 million vehicles in 2014, possibly
topping the 16.1 million vehicles sold in 2007.

J.D. Power and LMC forecast that U.S. auto production will rise 3
percent to 16.5 million next year.

To meet increased demand, suppliers have less time to do
preventative maintenance on their equipment because the are
working to meet rising U.S. vehicle demand, Thai-Tang said.

One of Ford's vehicle programs has a "yellow" rating, meaning
that too many suppliers are operating at full tilt, Thai-Tang
said, without naming the vehicle. In the past, Ford executives
have said supply problems hampered the launch of the Lincoln MKZ
sedan.

Thai-Tang added that the number of suppliers operating at
worrisome production levels is on the decline.

"In the past when we weren't running at full capacity, when we
weren't running at three shifts, when we weren't running seven
days a week - you actually had more cushion," he said.

"Now we've removed that cushion. We're a lot more exposed in
terms of any production issues because you just can't recover,"
added Thai-Tang, who assumed his current role on August 1.

In 2009, U.S. auto sales fell to 10.4 million, the lowest for the
industry in about 30 years. The sharp drop forced Ford rivals
General Motors Co <GM.N> and Chrysler Group LLC
<FIA.MI> into bankruptcy.

Between 2004 and 2012, the three U.S. automakers cut their
collective capacity by 29 percent, according to a December 2012
report by the Center for Automotive Research. That report also
said nearly 15 vehicles were built for every auto job in 2012,
the highest level of labor productivity recorded since 1960.

During the crisis, Ford managed to stem its losses and return to
profitability due in part to Chief Executive Alan Mulally's "One
Ford" strategy, which helped cut engineering and production costs
by creating a global manufacturing strategy.

This push has been a cornerstone of Mulally's restructuring plan
over the last seven years.

Now Ford is exploring a strategy that may require change to the
design of certain models so their parts can more easily shared
with other models built in the region, Thai-Tang said.

This will primary work in emerging markets, like South America
and Thailand, where Ford builds fewer than the 100,000 vehicles
required for the best price for a part.

In a region like South America, cutting supplier costs may
require Ford to tweak the design of the Focus compact car so that
it has more in common with the automaker's small pickup truck,
the Ford Ranger, Thai-Tang said.

"I'm not saying we're going to open up everything and start
changing the design in every single region, but where it makes
good business sense but also allows us to have better regional
scale, we'll look at that," he said.

(Reporting by Deepa Seetharaman; Editing by Steve Orlofsky)

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